The new entity, which observers are referring to as Sky Europe, would have 19 million subscribers in the U.K., Ireland, Italy, Germany and Austria.
Goldman Sachs analysts estimate that combining the three companies could generate synergies of £100 million ($170 million) by 2017, the Financial Times reported Thursday.
It would also strengthen the company’s hand in the German market, which offers large opportunities for growth. Only 20% of German households pay for premium pay TV channels, compared with 50% in the U.K., according to research group IDATE.
The case for buying Sky Italia is weaker as it has lost more than 200,000 customers since 2011.
The deals would also release coin for Rupert Murdoch’s 21st Century Fox, which it could use for an acquisition of Time Warner. As well as owning a 39% stake in BSkyB, Fox owns 100% of Sky Italia and 57% of Sky Deutschland.